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TMI Blog2017 (1) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11 of the Income Tax Act while computing its income ignoring the fact that the assessee-society is an educational institution and registered under section 12AA of the Income Tax Act and the society was holding the property/assets wholly for charitable purposes. 4. On the facts and circumstances of the case, learned CIT(A) has erred both on facts and in law in not appreciating the provision of Section 11 of the Act whereby exemption is to be provided to the extent which income of the charitable trust is applied to charitable or religious purposes in India. 5. On the facts and circumstances of the case, learned CIT (A) has erred both on facts and in law in not appreciating the fact that the income U/s 11 (1) refers. to the income from property held under the trust and which has to be applied for charitable purposes irrespective of the head of income under which the income is assessable. 6. On the facts and circumstances of the case, learned CIT (A) has erred both on facts and in law in ignoring the various judicial pronouncements in this regard. 7. That the CIT(A) has erred both on facts and in law in confirming the findings of the learned AO ignoring the explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act. Further addition of Rs. 12,676/- on account of interest income, Income from IT Refund Interest of Rs. 37,382/- and miscellaneous income of Rs. 7,95,450/-received as voluntary donations. Total addition of Rs. 44,54,602/- was made to the returned income of the assessee. Thereafter, the AO completed the assessment at Rs. 44,54,602/- by making various additions vide his order dated 29.3.2014 passed u/s. 143(3) of the Income Tax Act, 1961. 5. Against the assessment order dated 29.3.2014, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 25.1.2016 has dismissed the appeal of the assessee. 6. Aggrieved with the aforesaid order of the Ld. CIT(A), assessee is in appeal before the Tribunal. 7. During the hearing, Ld. Counsel of the assessee has stated that in the present case the assesse purchased and constructed the property after taking term loan from the bank and made the agreement with the Mother Pride Education Persona P Ltd. in respect of rental income. There is no case of any transfer of funds to the members of the society. He further stated that the rental income from the property is in the charitable objects of the Trust as mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to 20% of the entire collection which includes registration charges, admission charges, annual charges, quarterly charges, monthly fees, hobby classes and charges of all the activities conducted in the school except transport and refundable security. During the assessment proceedings the amount received from Mothers Pride Persona Limited of Rs. 51,55,453/- as Income under the head house property and allowed statutory deduction under section 24 of Rs. 15,46,359/- of the Income Tax Act. Further addition of Rs. 12,676/- on account of interest income, Income from IT Refund Interest of Rs. 37,382/- and miscellaneous income of Rs. 7,95,450/- received as voluntary donations. Total addition of Rs. 44,54,602/- was made to the returned income of the assessee. Aggrieved by the order of the AO assessee preferred an appeal before the Ld.CIT(A) who rejected the contention raised by the assessee that the interest paid by the assessee for raising the loan for construction of the property, repayment of loan, are application of income and therefore assessee in total has applied Rs. 69,71,358/- which is far more than the receipts and confirmed the addition made by the AO. I find that AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of total income". Section-11 of the Act placed under Chapter-III deals with 'income from property held for charitable or religious purpose'. Section- 11 (1 )(a) provides that income derived from the property held under trust wholly for charitable or religious purpose, to the extent to which such income is applied, shall not be included in its total income. The Act also provides that upto 15% of the gross income received is accumulated and then the same shall also be exempt from the income of the trust. From the above it is clear that provision of the Act in Chapter-III deals with the manner in which the income of the assessee trust has to be applied in order to exempt such income from the total income. It is not a case of computation of income chargeable to tax as per the provisions Chapter IV under the head "C-Income from house property". Therefore while determining the "income" of the assessee trust and its "application of income" for the purpose of claiming exemption u/s. 11(1 )(a) of the Act, the provisions of Chapter-IV - Sections 22 to 27 of the Act which is applicable for computing the income chargeable to tax under the head 'income from house property' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rental income in the property held in trust amounted to 90 per cent, of the total income of the trust. For the purpose of putting up the construction of the property held in trust, the trust borrowed fund from the Indian Bank. Thus, the capital asset so put up by the borrowed fund is only for the purpose of augmenting income in order to carry out the object of the trust as envisaged. It is clear from the order of the Commissioner of Income-tax (Appeals) that neither the Assessing Officer nor the assessee has adverted to the object of the charitable trust. But the authorities proceeded on the premise that the complex has been put up by the trust in order to perform its charitable activities, which factum has also not been disputed by the Revenue. The assessee-trust in order to perform its charitable activities, necessarily has to exploit the capital assets by finding appropriate avenues for earning revenue and for that purpose, has to incur expenditure, which is capital in nature by raising loan. The capital asset built with a borrowed fund generates income which enabled the charitable trust to perform its charitable activities. Thus, the capital asset built with borrowed fund, unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tten submissions. AO observed that the society has made an agreement with M/s Mothers Pride Personal Ltd. to establish a pre-school learning centre/ nursery school. As per the agreement with the assessee and the said company, premise will be made available free of charges during the subsistence of the agreement. In consideration of the above assessee is entitled to 20% of the entire collection which includes registration charges, admission charges, annual charges, quarterly charges, monthly fees, hobby classes and charges of all the activities conducted in the school except transport and refundable security. AO during the assessment proceedings considered the amount received from Mothers Pride Persona Limited of Rs. 97,90,257/- as Income under the head house property and allowed statutory deduction (@30%} of Rs. 29,37,077/- and interest on borrowed capital of Rs. 33,94,280/- under section 24 of the Income Tax Act. Further addition of Rs. 17,503/- on account of interest income was also made by him. Total addition of Rs. 34,54,602/- was made to the returned income of the assessee. Thereafter, the AO completed the assessment at Rs. 34,76,403/- by denying the exemption u/s. 11 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and relied upon the orders of the authorities below and requested that the same may be upheld. 15. I have heard both the parties and perused the relevant records available with me, especially the orders passed by the revenue authorities and the case laws cited by the Ld. Counsel of the Assessee. During the year under consideration the assessee had an agreement with M/s Mothers Pride Education Persona Limited to establish a pre- school learning center/ nursery school. As per the agreement with the assessee and the said company, premise will be made available free of charge during the subsistence of the agreement. In consideration of the above assessee is entitled to 20% of the entire collection which includes registration charges, admission charges, annual charges, quarterly charges, monthly fees, hobby classes and charges of all the activities conducted in the school except transport and refundable security. AO during the assessment proceedings consider the amount received from Mothers Pride Persona Limited of Rs. 97,90,257/- as Income under the head house property and allowed statutory deduction (@30%} of Rs. 29,37,077/- and interest on borrowed capital of Rs. 33,94,280/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal that the rental income earned by the respondentsociety is being utilized again for the purposes of imparting education by maintaining the buildings and constructing new buildings for the same purpose. As such, we are of the view that the charitable purpose is not lost and it cannot be said that the assessee-respondent is not entitled to exemption claimed by it under section 11 of the Act." 15.1 I find that in the case of assessee although the source from which the money is received is lease & license fee but its application is for the purposes of charitable activities covered u/s 2(15). Further, loan advances by an educational trust to students for higher studies should be treated as application of income for the charitable purpose. I further note that the CBDT vide its Circular No. 100 [F.No. 195/1/72-IT(A-I), dated 24.1.1973] has decided that repayment of the loan originally taken to fulfill one of the objects of the trust will amount to an application of the income for charitable purposes. As regards the loan advanced for higher studies. If the only object of trust is to give interest bearing loans for higher studies, it will amount to carrying on of money lending business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cent, of the total income of the trust. For the purpose of putting up the construction of the property held in trust, the trust borrowed fund from the Indian Bank. Thus, the capital asset so put up by the borrowed fund is only for the purpose of augmenting income in order to carry out the object of the trust as envisaged. It is clear from the order of the Commissioner of Income-tax (Appeals) that neither the Assessing Officer nor the assessee has adverted to the object of the charitable trust. But the authorities proceeded on the premise that the complex has been put up by the trust in order to perform its charitable activities, which factum has also not been disputed by the Revenue. The assessee-trust in order to perform its charitable activities, necessarily has to exploit the capital assets by finding appropriate avenues for earning revenue and for that purpose, has to incur expenditure, which is capital in nature by raising loan. The capital asset built with a borrowed fund generates income which enabled the charitable trust to perform its charitable activities. Thus, the capital asset built with borrowed fund, under no circumstances, could be regarded to be outside the scope o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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